Key Points:
Two-Tier Crude Market: Aramco sets $5-below-benchmark for Asia → raises $3-above for Europe → swing on identical barrel proves a single global oil price no longer exists.
Diesel's 67% Surge: US diesel averaged $6.20 per gallon on October 5, up 67% year over year, the steepest annual climb since AAA began tracking weekly prices, driven by the loss of sour crude supply to Gulf Coast refineries.
Quota Fiction Threshold: If Saudi Arabia's production stays below 8.5 million barrels per day through Q4, the kingdom will average more than 2 million bpd under its OPEC quota for a second straight quarter, rendering the output ceiling functionally meaningless.
US Inventory Drain: Commercial crude stocks fell to 410.6 million barrels last week, 4% below the five-year average.
On October 5, a pricing officer at Saudi Aramco did something I can't stop thinking about. He set two prices for the same barrel of oil. One for Asia. One for Europe. Five dollars below the benchmark for the east. Three dollars above for the west. Same crude. Same grade.
That gap is a map of a broken world.
OPEC meets today. They will meet virtually and talk about quotas. Saudi Arabia's quota is 10.478 million barrels a day. In September, the kingdom pumped 8.37 million. The gap is 2.108 million barrels a day. That is less oil than Iraq exports. And no one at the table can close it.
Warren Buffett said it. Peter Lynch said he'd own one stock if he could find one great stock.
Jeff Brown believes he found it.
I don't think most people realize what that means. For sixty years, OPEC was about turning the spigot. Pump more, price falls. Pump less, price rises. That game assumed the oil could move. It can't. Iran declared the Strait of Hormuz closed on October 26. Four tankers hit mines three days later. A supertanker that used to cost a hundred thousand dollars a day to charter now costs $1.33 million. The math kills the route before the mines do.
So Saudi crude goes west. Through one pipeline to the Red Sea port of Yanbu. Then north through Suez to Europe. Those buyers pay the premium. Asian buyers get a deep discount. But the discount is a coupon they can barely redeem. The route south from Yanbu runs past the Houthi coast. It's not a pricing choice. It's geography.
Here's what nobody is talking about. In July, Saudi crude shipments to the United States hit zero. Bloomberg reported it. Zero barrels. First time in forty-one years. The longest supply relationship in the modern oil era just went dark.
Our Gulf Coast refineries were built for Saudi crude. Heavy. Sour. Full of sulfur. That's the barrel they lost. Domestic light sweet crude doesn't run the same way through those plants. You can force it. But you lose yield. And yield is what becomes diesel.
Skip the $29.97 Page
If you go to my website today and look up the "Safe Trade Options Formula," you'll hit a checkout page. $29.97.
Don't go to my website.
I'm sending you around it. This link gets you a copy for $0. No cart, no card.
It's not posted anywhere public. I opened it for people on this list, and I'll be closing it again.
What's on the other side is the formula I use to decide trade size on every options trade I make.
Five parts. It sets your risk percentage, turns that into a contract count, and rounds down so one bad trade stays small. Works the same on $5,000 as it does on $500,000.
The front of the store will always be there. This way it won't.
P.S. Once this link closes, the only route left runs through the $29.97 page. Use the shortcut while it exists.
Diesel hit $6.20 a gallon on October 5. Up 67 percent in twelve months. Gasoline was $4.35. Up 39 percent. But diesel is the price that moves everything else. Every truck on the highway. Every pallet at the warehouse. Every carton of eggs on the shelf.
Goldman Sachs called this the largest supply shock in the history of the global crude market. That was back in March. They set an October Brent target of $90. Brent touched $116.87 on Thursday. The analysts missed by twenty-seven dollars. The war moved faster than the models.
We get it. Analysts make forecasts. Forecasts miss. But when the miss is twenty-seven dollars on the most traded commodity on earth, it tells you the old models don't work anymore. The old models assumed one market. Now there are two.
US crude inventories sat at 410.6 million barrels as of October 23. Four percent below the five-year average. That buffer used to be topped off by tankers from the Gulf. Those tankers stopped coming. Every barrel we draw from stockpile is a barrel nobody is replacing.
Sixty-seven percent. That's how much diesel climbed in one year. Write that number down. It is the thread that runs from a mined strait in the Persian Gulf to the receipt your wife brings home from the grocery store.
Here's what worries me. OPEC will release a statement today. It will say the usual things. Market balance. Orderly supply. Commitment to stability. The words don't mean anything when the world's biggest producer can't ship its own oil. Saudi Arabia's GDP fell 4.7 percent in the second quarter. Oil activity dropped 24.8 percent. The kingdom is hurting too. But their pain doesn't lower your price at the pump.
Nobody knows when this ends. A ceasefire could reopen Hormuz. De-mining could take months. The Houthi campaign against Saudi refineries shows no sign of stopping. And midterms are two days away. I get it. Politicians will promise relief. But no speech in Washington can clear a mine from a shipping lane.
The pricing officer in Dhahran already told you the truth four weeks ago. He split his price sheet in half. One number for east. One for west. One world. Two oil markets. And nobody meeting virtually today can put them back together.
More on this tomorrow.
— American Ledger
